SSE will separate its household and business services ahead of the merger, to enable npower and the household services arm of SSE to “create a new market model”.

On the deal, Alistair Phillips-Davies, chief executive of SSE, said: “This will enable both the new retail business and the remaining SSE to focus more acutely on pursuing their own dedicated strategies, and will ultimately better serve customers, employees and shareholders.”

SSE said the transaction will help to create a new market model by combining the resources and experience of two established players with the focus and agility of an independent supplier.

The merger is expected to be complete by the first quarter of 2019. The transaction is subject to relevant competition and regulatory approval, as well as approval from SSE’s shareholders and the supervisory board of npower.

The agreement between the two companies includes the possibility of a £60m break fee to npower, if SSE’s shareholder do not approve the transaction.

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